The New Delhi bench of the Income Tax Appellate Tribunal (ITAT) directed the assessing officer to re-adjudicate the disallowance made on club expenses due to the use of expenses for the personal benefit of directors.
Bhalla Chemical Works P. Ltd, the appellant assessee appealed against the order passed by the Commissioner of Income Tax (Appeals) for confirming the disallowance made by the assessing officer on club expenses.
Rajat Jain and Ashish Mendiratta, the counsels for the assessee contended that as per the assessment order for the assessment year 2010-11, the assessing officer had estimated 5% of such expenses towards personal users.
It was further submitted that disallowance made by the relevant year by the assessing officer was not justifiable and is liable to be deleted.
Kanav Bali, the counsel for the revenue relied on the decisions made by the lower authorities and contended that disallowance made by the assessing officer on club expenses was due to the personal use by the directors for their benefits which does not involve any commercial expediency and are liable to be sustained.
The bench observed that the assessing officer in the earlier years’ disallowances of club expenses was not justified. Such disallowances of expenses are thus restricted to 5% on an estimated basis in tune with the previous assessment order.
The two-member bench comprising Chandra Mohan Garg (Judicial) and Pradip Kumar Kedia (Accountant) directed the assessing officer to re-adjudicate the disallowance and reduced it to 5% on an estimated basis while allowing the appeal filed by the assessee.
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